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The Consumer Financial Protection Bureau (CFPB), along with the Minnesota Attorney General’s Office, North Carolina Department of Justice and the Los Angeles City Attorney, announced an action yesterday to halt a student loan debt-relief operation engaged in allegedly unlawful conduct and consisting of several related companies: Consumer Advocacy Center Inc., which does business as Premier Student Loan Center; True Count Staffing Inc., also known as SL Account Management; and Prime Consulting LLC, which is known as Financial Preparation Services. Defendants also include Albert Kim, Kaine Wen and Tuong Nguyen, whom the Bureau alleges substantially assisted the student loan debt-relief companies. The CFPB alleges that since at least 2015, the debt-relief companies operated as a common enterprise, deceived thousands of federal student loan borrowers, and charged over $71 million in unlawful advance fees in connection with the marketing and sale of student loan debt-relief services to consumers. The CFPB alleges that Premier, along with its company co-defendants, violated the Consumer Financial Protection Act of 2010 (CFPA) and the Telemarketing Sales Rule (TSR) by making deceptive representations about the companies’ student loan debt-relief and modification services. Specifically, the complaint alleges that Premier charged and collected improper advance fees before consumers had received any adjustment of their student loans or made any payment toward such adjusted loan.

The payday-loan business was in decline, but just a few years later, many of the same subprime lenders that specialized in the debt are promoting an almost equally onerous type of credit, according to a Bloomberg News commentary. It’s called the online installment loan, a form of debt with much longer maturities but often the same sort of crippling, triple-digit interest rates. If the payday loan’s target audience is the nation’s poor, then the installment loan is geared to all those working-class Americans who have seen their wages stagnate and unpaid bills pile up in the years since the Great Recession, according to the commentary. In just a span of five years, online installment loans have gone from being a relatively niche offering to a red-hot industry. Subprime borrowers now collectively owe about $50 billion on installment products, according to credit reporting firm TransUnion. In the process, they’re helping transform the way that a large swathe of the country accesses debt. And they have done so without attracting the kind of public and regulatory backlash that hounded the payday loan, according to the commentary.

A growing percentage of Santander Consumer USA Holdings Inc.’s subprime auto loans are turning out to be clunkers soon after the cars are driven off the lot, Bloomberg News reported. Some loans made last year are souring at the fastest rate since 2008, with more consumers than usual defaulting within the first few months of borrowing, according to analysts at Moody’s Investors Service. Many of those loans were packaged into bonds. Santander Consumer is one of the largest subprime auto lenders in the market. The rapid failure of some of its loans implies that a growing number of borrowers may be getting loans based on fraudulent application information, a problem the company has had before, and that weaker consumers are increasingly struggling. During last decade’s housing crunch, mortgage loans started souring within months of being made, signaling growing problems in the market. Subprime car loans aren’t in a crisis, but lenders across the industry are facing more difficulty. Delinquencies for auto loans in general, including both prime and subprime, have reached their highest levels this year since 2011.

U.S. Secretary of Education Betsy DeVos was hit with a $100,000 fine for violating a judge’s order to stop debt collection efforts against former students at bankrupt Corinthian Colleges Inc., Bloomberg News reported. Despite the order, the department went as far as seizing the students’ tax refunds and wages. U.S. Magistrate Judge Sallie Kim in San Francisco issued the fine Thursday, after finding DeVos in contempt of court. Kim ordered the $100,000 to go to a fund held by the students’ lawyers to help the more than 16,000 borrowers who she said suffered damages from the violation. Both sides must submit a plan for administering the fund by Nov. 15. The judge’s rebuke comes hours after DeVos’s point person on overhauling the student loan system abruptly resigned and publicly called for mass debt forgiveness.

A senior student loan official in the Trump administration said he would resign today and endorse canceling most of the nation’s outstanding student debt, calling the student loan system “fundamentally broken,” the Wall Street Journal reported. A. Wayne Johnson was appointed in 2017 by Education Secretary Betsy DeVos as chief operating officer of the Office of Federal Student Aid, overseeing the $1.5 trillion student-loan portfolio. After seven months, he moved into a different role as chief strategy and transformation officer, leading a revamp of how the agency deals with borrowers and the companies that service the debt. Johnson said that repayment trends suggest much of the debt will likely never be repaid, and he is calling for moving toward a system that gets the government out of student lending. “We run through the process of putting this debt burden on somebody…but it rides on their credit files—it rides on their back—for decades,” he said, adding, “The time has come for us to end and stop the insanity.” Johnson said he arrived at his position to cancel student debt after he joined the administration and had a firsthand look at the problems, including the high level of defaults and the difficulties of administering a program to erase loans for public-sector workers. Read more. (Subscription required.) 

In related news, a trove of documents released on Tuesday by the House Education and Labor Committee shows the Education Department provided $10.7 million in federal loans and grants to students at the Illinois Institute of Art and the Art Institute of Colorado, even though officials knew the for-profit colleges were not accredited and ineligible to receive such aid, the Washington Post reported. The documents build on prior reports from the committee describing efforts by Education Department officials to shield Dream Center Education Holdings, owner of the Art Institutes and Argosy University, from the consequences of lying to students about the accreditation of its since-closed schools. Now it appears the Education Department tried to shield itself from an ill-fated decision to allow millions of dollars to flow to those schools. Rep. Robert C. “Bobby” Scott (D-Va.), chairman of the House Education Committee, is threatening to subpoena Education Secretary Betsy DeVos for more documents related to the department’s role in Dream Center’s actions. Scott says that the agency has obstructed the committee’s investigation and refused to answer questions, as emails and letters paint a picture of a federal agency complicit in an effort to place profits before students. The agency defended its actions. “It seems to us that the chairman is cherry-picking facts and lacking important context,” said Angela Morabito, a spokeswoman for the Education Department. “The department maintains that it acted in the best interest of students and has continued to act in the best interest of students.” By law, for-profit colleges must be fully accredited to participate in federal student aid programs. Neither the Art Institute of Colorado, the Art Institute of Michigan or the Illinois Institute of Art in Chicago and Schaumburg held that seal of approval from their accreditor, the Higher Learning Commission, in the 2018 spring semester. In reviewing Dream Center’s 2017 acquisition of the chain, the accrediting commission raised concerns about the quality of education at the campuses and downgraded their status for up to four years. Read more.